INTRODUCTION TO ECONOMICS I: PRINCIPLES OF MICROECONOMICS
EXAM: 19th JANUARY, 2016
Length: 3 hours
Name and surname:…………………………………………………………………………………………………………….
ID Number:………………………………………….
Teacher: …………………………………………………………………..
Group:…………..
1st EXERCISE (1 point)
Suppose that Brazil has 16 million workers and Germany 24 million workers (resources), and have the
following sets of production possibilities for oil and cars shown in the following table.
Brazil
Germany
Barrels of oil (millions)
Cars (millions)
Barrels of oil (millions)
Cars (millions)
0
4
0
10
400
2
200
5,0
800
0
400
0
(a) Which is the opportunity cost of producing a car in Brazil?. And, in Germany?. What is the
opportunity cost of producing one barrel of oil in Brazil?. What about Germany?. Which country has
comparative advantage in oil production and which in the production of cars?. Explain your answer
helped with appropriate calculations.
(b) Which country has absolute advantage in producing oil? And which one has in producing cars?
2nd EXERCISE (2 points)
CABLESA is a competitive firm that produces (Q) with the following technology Q =L2 * K2.
(a) Calculate the average product (AP) and the marginal product (MP) of each production factor.
Analyze the type of returns to scale of this production function.
(b) Now consider that its short-term production function (with a single productive factor, L) is:
Q =9*L2, obtain the type of returns to scale of this short-term production function. Calculate and
graph the variable cost function VC(Q) of CABLESA when the market wage is w=2. Does the
shape of CT(Q) function have any relationship with the shape of the production function?
The short-term total cost function of its American subsidiary firm CABELEC is: TC(Q)= 100+Q3.
(c) Obtain and represent graphically the following functions of CABELEC: average total cost
(ATC), average variable cost (AVC) and marginal cost (MC).
(d) Calculate the shut-down price and quantity of CABELEC. Reason your answer.
(e) Find the supply function of CABELEC
(f) If CABELEC faces a market price P =20. Calculate the output level that maximizes its profits.
Quantify the amount of such profits.
3rd EXERCISE (2 points)
To celebrate the Epiphany during the Christmas season, throughout the month of December the ‘Three Wise
Men’ have made their purchases to supply toys and sweets to all children. Each of The Magi has very
different preferences for both types of goods, but they have the same endowment, € 600,000 each, to buy
